Outlook for the DeFi Ecosystem in 2024: Industry Development Trends and Future Directions

In the past few years, decentralized finance ( DeFi ) has experienced rapid development and transformation. From its initial experimental projects, DeFi has evolved into an indispensable infrastructure in the cryptocurrency space. While some well-known projects have stood out, competition in this field is also becoming increasingly fierce. Exchanges are continuously lowering fees to compete for trading volume, lending platforms are increasing loan-to-value ratios to enhance capital efficiency, and various projects are actively developing new products to expand market share. So what new trends might emerge in the DeFi space in 2024? Here are some key predictions for the future development of DeFi.

The Trend of Protocol Platformization

As the DeFi industry continues to mature, major protocols are beginning to seek transformation from single-function to comprehensive service platforms. Over the past year, several well-known DeFi projects have expanded their business scope: a certain DAO's sub-DAO quickly became a major lending protocol after its launch; a certain DEX and a certain lending platform each launched their own stablecoins; another DEX also launched a wallet application and acquired an NFT platform. DeFi projects on new public chains have developed multiple functions in a one-stop manner, including stablecoins, exchanges, and liquidity staking. This trend towards platformization is likely to continue to strengthen in the future, reflecting the maturity and increasing competition within the DeFi industry.

Advantages of Leading Projects Persist

Born before the last bull market, leading DeFi protocols have established strong network effects and brand influence through years of market testing. They have further consolidated their market position through continuous updates and iterations, and will continue to dominate in the short term. A leading DEX announced a new version that allows for custom features through "hooks"; a lending platform's new version has improved capital efficiency and expanded across multiple chains. Data shows that a leading DEX still holds about 55% market share on major EVM chains.

Efficient Project for Fund Flow

In mature public chain ecosystems, simple liquidity mining has gradually declined. Projects rely more on "real yields" to attract funds, and investors are also inclined to seek opportunities with higher capital efficiency. Recently, a DEX on a certain public chain has demonstrated strong capital efficiency, generating considerable returns for liquidity providers solely from trading fees. In contrast, the yields of similar projects on other chains are much lower. In a situation where profitability varies significantly, professional investors are likely to turn to more efficient emerging projects. However, this does not mean that leading projects will be replaced; they still possess better fundamentals and security.

LST Drives TVL Growth of New Public Chains

Although liquid staking tokens (LST) have existed on multiple PoS public chains for a long time, they only gained widespread attention after an upgrade of a certain public chain. Now, a certain LST project has become the DeFi project with the highest TVL. The same trend is also seen on other public chains, where LST projects occupy the top of the ecological TVL. LST not only attracts staking volume but also promotes the growth of the entire ecosystem's TVL. Other public chains looking to increase their TVL seem to have discovered the effects of LST and are pushing for its application in the ecosystem through incentive measures.

Perp DEX may break through

The decentralized perpetual contract exchange ( Perp DEX ) has always received attention, giving rise to several well-known projects. However, existing projects still have shortcomings in user experience. One leading project has issues with long and short imbalances during one-sided market conditions; another project's introduced slippage mechanism brings uncertainty to users. Recently, some emerging Perp DEXs have shown attractive characteristics, such as a liquidity pool from one project that offers high returns, although the risks are correspondingly high. Additionally, some projects have proposed solutions with more efficient capital utilization. This niche track is expected to see more competitive new projects emerging in the future.

Exploration of Real-World Assets

Real-world assets ( RWA ) is a controversial direction. It involves off-chain components and may rely on a single entity or face regulation, which does not fully align with the decentralized philosophy of DeFi. Currently, US Treasury bonds seem to be the only RWA direction that can be applied on a large scale. However, as interest rate expectations change and the crypto market may enter a bull market, the attractiveness of RWA products may decline. Nevertheless, entrepreneurs are still actively exploring this track, and traditional financial institutions may be introduced as partners in the future, which will at least become an influential narrative.